Page 211 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes “It’s the most contested market there is,” said Gail Grimmett, the senior vice president at
Delta Air Lines in charge of New York. “That’s because it’s the largest revenue pool.”
A big piece of the battle is for business travelers, who account for the bulk of the industry’s

profits. To woo them, airlines are introducing sommelier-chosen wines and fancy lie-fl at

beds to their business cabins on international flights from New York. They are sprucing
up shabby terminals and expanding their domestic networks from all three of the area’s
airports.
If the United-Continental merger succeeds, the new airline will have about a 55 percent
share of domestic travelers and a 65 percent share of international travelers at Newark,
where Continental has been building its lead for 10 years.
Delta, meanwhile, which bought Northwest Airlines two years ago to become the nation’s
top airline, has used its new muscle to expand its presence in both La Guardia and Kennedy.
American, once the biggest airline in New York, has been losing ground. Until now, United
has not been one of the city’s big players.

All the competition for the New York market has kept air fares relatively low so far. But
analysts cautioned that if an airline becomes too dominant at any one airport, there would
be less pressure to keep the lid on prices. Such concerns could raise antitrust issues for
United and Continental’s planned merger.
The one major airline left out of all the jockeying in New York has been Southwest, which
has struggled to establish a presence at La Guardia. The airline’s executives have expressed
frustration at their inability to expand in New York. “If you want to capture the business
travelers you need to be in New York City,” said Whitney Eichinger, a spokeswoman for
Southwest.
The New York airports are the largest American gateway to Europe, accounting for a third

of all passengers flying across the Atlantic. Those routes, in turn, capture 26 percent of all
spending on business and first-class tickets, according to the International Air Transport

Association.
As part of the struggle for a piece of the trans-Atlantic market, the biggest American
airlines have been lining up European partners through three major alliances — Sky Team,
Star, and Oneworld. The alliances allow the airlines to coordinate prices, jointly schedule

international flights and, sometimes, share revenue. They also help the airlines on both
sides of the Atlantic attract more passengers to their own domestic networks.
One of the most visible parts of the battle for New York is taking place in the front of the
airplane. Delta, for example, is planning to spend $1.2 billion on improving its business-

and first-class cabins in the next three years and has started by introducing fl at-bed seats
on flights from New York to London.

Then there’s the battle for market share, particularly at La Guardia, the 70-year-old airport
that last year ranked last in on-time arrivals but is favored by business travelers because it
is the closest to Midtown Manhattan.
Delta said last summer that it planned to trade 42 daily takeoff and landing rights, called
slots, at Reagan National Airport in Washington for US Airways’ 125 pairs of slots at La
Guardia.
But the Transportation Department requested that the airlines divest 34 pairs to preserve
competition. In response, Delta and US Airways offered to give up 20 pairs, which would
still double Delta’s market share to about 40 percent at La Guardia.

The department said that counter offer was still “insufficient,” but repeated it would
approve the deal if the companies abided by its original ruling. The airlines said on May 4
2010 they would appeal the decision. Contd...

206 LOVELY PROFESSIONAL UNIVERSITY